93-834 EPW ....- aeplte.nlheJ::.22~93 CRS Report for Congress Congressional Research Service o The Library of Congress Health Care Fact Sheet: Original Medicare Cost Estimates Jennifer O'Sullivan Specialist in Social Legislation Bud Graves Technical Information Specialist Education and Public Welfare Division Medicare is a nationwide health insurance program for the aged and certain disabled persons. It was enacted as part of the Social Security Amendments of 1965 (P .L. 89-97) and went into effect July 1, 1966. Medicare consists of two separately financed parts, the hospital insurance portion, Part A, and the supplementary medical insurance (SM!) portion, Part B. At the time the program was enacted, actuarial cost estimates were made for both parts, though long-term projections were made only for Part A. These initial Part A estimates fell considerably short of actual experience. Medicare Part A Projections. Almost all persons over age 65 are automatically entitled to Medicare Part A. (Coverage for the disabled population was not added until 1973.) Original cost projections were based on the estimated costs of providing hospital and related services for the aged. Part A is financed through payroll taxes levied on current workers and their employers. At the time of enactment, expenditures were projected well into the future so that a payroll tax rate could be established based on potential program costs. Table 1 shows the initial Part A projections for 1966-1990. Table 1 also shows actual expenditures for those years. The divergence between actual and projected expenditures reflect a number of factors including coverage of the disabled population; expansions in benefits; inflation, particularly medical care inflation; and increased utilization induced by the program's enactment. Medicare Part B Projections. Part B is financed through a combination of beneficiary premiums and Federal general revenues (Le., tax dollars). Premium rates and Government contribution rates are set annually to meet current costs. Original Part B expenditure estimates were not made beyond the first 2 years of operation--calendar years 1966 and 1967. Enrollment in Medicare Part B is voluntary. Therefore projections for Part B had to include estimates of the percentage of the aged population that would elect Part B coverage. Projections for Part B included both high and low-cost estimates at 80 and 95 percent enrollment. Expenditure estimates at 95 percent enrollment, which proved to be correct, are shown in table 2, together with actual expenditures for those years. ~ CRS CRS Reports are prepared for Mem~ers and committees ofCongress 111111111111 1111 111111111111111111111111 CRS-2 TABLE 1. Hospital Insurance Expenditures Part A * (in millions) Actual m expenditures 1965 estimates Benefit Admin. payments costs CY 1966 1967 1968 1969 1970 1971 1972 1973 1974 1975 1980 1985 1990 $ 987 2,210 2,406 2,623 2,860 3,077 3,303 3,540 3,788 4,047 5,307 6,860 8,797 $ 50 66 72 79 86 92 99 106 114 121 159 206 264 Admin. Benefit payments costs Total $1,037 2,276 2,478 2,702 2,946 3,169 3,402 3,646 3,902 4,168 5,466 7,066 9,061 $ 891 3,353 4,179 4,739 5,124 5,751 6,318 7,057 9,099 11,315 25,064 47,580 66,239 $108 77 99 118 157 150 185 232 272 266 512 834 758 Total $ 999 3,430 4,277 4,857 5,281 5,900 6,503 7,289 9,372 11,581 25,577 48,414 66,997 *Columns may not total due to rounding. Source: (1965 estimates) House Ways and Means Comm. Prt. 51-291, Actuarial Cost Estimates and Summary of Provisions of the Old-Age, Survivors, and Disability Insurance System as Modified by the Social Security Amendment$ of 1965 and Actuarial Cost Estimates and Summary of Provisions of the Hospital Insurance and Supplementary Medical Insurance Systems as Established by Such Act, 89th Cong., 1st Sess.), p. 33. (Actual expenditures) House Doc. 102-89, 1991 Annual Report of the Board of Trustees of the Federal Hospital Insurance Trust Fund, p. 27. TABLE 2. Supplementary Medical Insm'ance Expenditures Part B (in millions) 1965 estimates (95 percent enrollment) CY Benefit Admin. payments costs Total 1966a Low-cost High-cost $260 410 $ 80 1967 Low-cost High-cost $1,060 1,260 $ 90 100 110 Actual SM! expenditures CY Benefit Admin. payments costs Total $340 510 1966 $ 128 $ 75 $ 203 $1,150 1,370 1967 $1,197 $110 $1,307 aAdministrative expenses shown include 1965 and 1966. Source: (1965 estimates) Same as table 1, at p. 39. (Actual expenditures) 1993 Annual Report of the Board of Trustees of the Federal Supplementary Medical Insurance Trust Fund, p. 10.